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Competition, project oversupply drive recent PPA price declines

New York — A platform released Wednesday that captures environmental, economic and energy production data underpinning renewable energy power purchase agreements could enhance corporate energy procurement by introducing greater transparency into the system, an analyst said.

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Seattle-based PPA price index publisher LevelTen Energy has built a tool providing access to PPA performance data designed to allow corporate energy managers to monitor performance metrics tied to renewable energy purchase contracts.

"It's an obvious evolution in energy systems for buyers to have more details of what they are buying, so they aren't surprised by purchasing complex PPA and energy derivatives," Evan Caron, co-founder and managing director of blockchain-based renewable energy data company Swytch, said in an email.

"Anything that can be done to allow more transparency in the energy procurement process is a step in the right direction."

TRACKS EMISSIONS IMPACT

LevelTen's Performance Monitoring platform includes environmental data like how many renewable energy certificates a company has received and is expected to receive. It also tracks the greenhouse gas emissions impact of renewable energy projects using the Environmental Protection Agency's Avoided Emissions and Generation Tool, according to a statement.

The platform also calculates historical and forecast settlement cash flow and net present value based on the price and terms of a PPA. The software can calculate how much a corporation will owe -- or receive -- at the settlement period, along with the current and forecast NPV, LevelTen said.

Energy production data includes the megawatt-hours of renewable energy generated and sold by a project and the volume of megawatt-hours the project is expected to produce. That data "enables managers to calculate the corporation's renewable energy usage and determine if the PPA was an effective hedge by comparing the corporation's energy costs to the settlement cash flow," according to LevelTen.

Performance Monitoring is also connected to the latest forward market curves so that if, for example, a renewable energy project has produced more RECs than expected, a company's sustainability team can adjust its targets accordingly, LevelTen said.

PPA PRICE TRENDS

"We've been seeing a year-over-year trend in which PPA prices declined from second quarter 2018 to Q2 2019, Rob Collier, vice president of developer relations at LevelTen, said by phone.

"Quarter over quarter, we saw a slight price increase from Q1 2019 to Q2 2019 of $0.18/MWh in the evenly weighted wind and solar P25 index," Collier said.

The price index consists of PPA offer prices across a range of dates from late 2019 to 2023. The data is aggregated and reported in percentile buckets, meaning P25 refers to the 25th percentile offer price.

The recent PPA price trends are largely being driven by competition among projects and corporate PPA market oversupply as renewable energy developers compete for commercial and industrial customers, Collier said.

Non-utility buyers of renewable energy contracted for more than 3.5 GW of new projects in 2018, according to sustainable energy nonprofit Rocky Mountain Institute. That figure exceeds both the 3.12 GW record set in 2015, the highest previous annual volume, and the 2.89 GW contracted for in 2017, the institute said in a statement.

The institute reported that there were 75 individual corporate renewable energy deals in 2018, more than twice the previous high of 32 recorded in 2015. Oil major ExxonMobil signed two renewable energy deals in 2018, the first time an oil company appeared in the institute's transaction data.

-- Jared Anderson, jared.anderson@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com